Money problems can lead to divorce

Divorce has serious retirement benefits

In addition to the controversy over custody and maintenance, occupational pensions can be forgotten. This is a mistake that can lead to gaps in retirement savings.

In a divorce there are only losers in the end - that's true in any case financially. The effects of divorce on retirement provision are particularly serious and often underestimated. In the case of a dispute about custody, maintenance or the common house, the topic of pensions takes a back seat. This is a mistake that can have serious consequences.

The wrong savings were made when saving

After a separation or a divorce, the expenses for daily life naturally increase: one household becomes two, another car has to be bought and maintained and much more. The amount of these additional costs is often underestimated. Unfortunately, the additional burden is often at the expense of pensions, because divorce and switching from a multi-person to a single-person household cost money. The spouse who has previously earned more has less available what he can save each month for old age. And the other spouse, usually the wife, often does not have the time to do more work after a divorce. The higher costs are usually compensated with a lower savings rate. But instead of saving on savings, the resulting pension gap would mean that more would have to be saved, argues Reto Spring, President of the Swiss Association of Financial Planners.

Even after a divorce, both partners should be economically independent - this is what the legislator wants. To ensure this, there is the so-called pension fund splitting. The second pillar assets accumulated during the marriage are shared equally between the two ex-spouses. In addition to the pension fund, this includes, among other things, early withdrawals for real estate, assets in vested benefits accounts and any management insurance.

Achievement or personal good?

Couples can agree on the separation of property in a marriage contract. This means that each partner retains their income and assets even during the marriage. In this case, the third pillar savings will not be shared in the event of a divorce. The assets from the occupational pension plan, however, cannot be excluded from splitting in a marriage contract. Even if the spouses have chosen the matrimonial property regime, the pension fund assets will be divided in the event of a divorce.

In certain cases, however, voluntary purchases into the pension fund can be deducted before the plan assets are split. This is allowed if the spouse concerned can prove that the voluntary purchase comes from an inheritance, an advance withdrawal, a gift or from premarital property. This property is part of the so-called personal property and is also excluded from the division in the case of the property regime of acquisition-sharing. If the purchase was made with money that was earned during the marriage, it cannot simply be excluded - not even if the couple has concluded a marriage contract with separation of property.

As soon as the divorce is final, the splitting can be registered. The compensation payments must remain in the occupational pension scheme, so they may not be paid out in cash. The money is then transferred to the spouse's pension fund. In the event that this is not a member of a pension fund, the assets must be transferred to another BVG investment vehicle.

When investing the compensation payment, divorced spouses should consider two factors in particular: On the one hand, they should definitely pay attention to the costs of the new investment solution. In this life situation in particular, one should not forego part of the return due to high costs. On the other hand, the entire portfolio of real estate, third pillar, securities accounts, etc. must be considered when choosing the investment. The additional capital should be invested depending on the overall asset allocation.

Paying the compensatory payment into the pension fund is not always worthwhile. This is especially the case when the divorced is young and will continue to pay contributions for many years to come. Due to the current redistribution in the BVG, the saver may lose part of his pension. As a rule, purchases into the pension fund are advisable from the age of 50 at the earliest, says the pension expert Spring.

Vested benefits accounts have another advantage over the pension fund: the assets can be invested in various ways, and a payment into a pension fund is still possible later. Contrary to what is often suggested, there are many other conceivable investment vehicles such as funds or ETFs in addition to the vested benefits account and insurance solutions.

Inaccurate calculation

There are numerous stumbling blocks in divorce that are overlooked when it comes to retirement planning. When calculating compensation payments, deferred taxes are often simply forgotten. The calculation is usually based on nominal amounts, but taxes are incurred on payment. For example, pensions from occupational pension schemes are taxed at 100% as income, and a tax is also levied on capital benefits from the second pillar. “Judges are not always good pension experts,” says Spring, whose specialty is pension planning. Likewise, in many cases a risk-free interest rate of 2% is assumed when calculating compensation payments in connection with the pension fund splitting - but savers have only been dreaming of such high interest rates for years. Market observers also assume that the phase of low interest rates will last for several years. Despite the numerous construction sites during a divorce, the spouses should make sure that the determination of compensation payments is proceeded with the greatest possible accuracy. An independent advisor or specialist lawyer should be consulted.

Part-time trap

In a large number of cases, the wives are responsible for the “family business” part-time or full-time. So you take care of the children and the household. Either you are not affiliated with a pension fund at all, i.e. you have no occupational pension, or because of the part-time work, this is less than that of the husband, who mostly works 100%. For women who take a baby break and later work part-time, a gap in retirement provision is programmed. This will reduce your lifetime income by around 30%. This problem is accentuated by a divorce. Saving more is often only possible by lowering the costs of everyday life after the divorce.

After a divorce, savers should take stock of their position. This begins with a list of what will be available at retirement age from AHV, BVG, private pension and other possible sources. Reto Spring warns against relying in good faith on the forecast retirement pension that is shown in the pension fund's pension certificate. Because these data are only estimates. Savers who are under 50 today should calculate conservatively and assume a 30% lower retirement pension. Many questions now arise: is this amount sufficient? What options are there? Would a longer working life or a lower standard of living be an alternative?